A new generation of big shorts on Wall Street is on the rise

in finance •  3 years ago 

Last month, the US federal government filed a lawsuit against the founder of electric car company Nikola (Nikola) for allegedly defrauding investors. This star company, which was listed in the summer of 2020 and once madly sought after, will fall into this field. It is really beyond the expectations of too many people, and it makes them "exposed". To a certain extent, it should be said that it is Anderson (Nathan Anderson). Credit.

In fact, Anderson is not a famous name on Wall Street, but now, this researcher, investor and his own startup Hindenburg Research are ushering in one of their own bright moments. In early August, the US Securities Regulatory Commission issued a subpoena to the sports betting company DraftKings, and the source of the matter was also because Hindenburg issued a research report in June that pointed out that the company may be involved in black market betting. Also, in March, Hindenburg pointed out that Lordstown Motors, an electric truck company, was suspected of hype and exaggerated the business’s interest in its products. Various propaganda investigations were launched.

Anderson’s company is currently only in its infancy, with only five people. Hindenburg Research was named after the German Hindenburg airship (LZ 129 Hindenburg) that exploded in 1937. Founded in 2017, the company is good at publishing detailed and informative reports on listed companies, exposing the ins and outs of their stories, and warning investors of potential impropriety and even illegal behavior. Recently, the so-called special purpose acquisition company (SPAC) has prospered, and it has undoubtedly provided Hindenburg with natural fertile ground.

Of course, Hindenburg is by no means a public welfare organization. This company backed by several investors will also place a bet to short stocks that Anderson believes that prices will fall after their report is released.

"He has now become a veritable giant killer." Frank Partnoy (Frank Partnoy), once a derivatives dealer, has now become a securities law professor at the University of California, Berkeley School of Law. He commented that Anderson " It seems to be fearless, even in the face of some of the biggest corporate targets."

The emergence of this new face of Anderson is a huge strengthening of the small investor group that has always existed in the market. These people are "radical short sellers." This recently emerged investment style was pioneered by Carson Block of Muddy Waters and Andrew Left of Citron Research. This tactic and its implementers often become the corporate world. They hate targets, even ordinary investors hate them, because the latter's operations may bring suffering to themselves.

However, the short sellers themselves have another set of interpretations. They regard themselves as private investigators in the financial market, aiming to detect corporate misconduct or inflated stock prices. Some of them, such as Anderson, will publish critical reports on target companies from time to time, and then widely publicize their views on social media and traditional news media to depress their stock prices.

At the same time, they themselves will also short positions in target stocks, betting that the prices of these stocks will fall due to their negative research results, in order to obtain substantial profits. However, this strategy is obviously very risky, because the possibility that the target stock price does not fall but rises cannot be completely ruled out.

On July 29, the federal regulatory authorities announced that they had filed a lawsuit against Nicholas’ founder, Trevor Milton, on charges of securities fraud. The price of the stock fell 15% on the same day. Anderson couldn't restrain his excitement and celebrated online. He wrote on social media that the government’s actions were “affirmation of the role of short sellers and critical researchers,” who are indispensable for a well-functioning stock market.

In an interview shortly afterwards, Anderson said that at that time he felt that he was finally recognized. "However, it is not only that. The reason why I am happy is that we have finally begun to leave our mark in the real world." He added, "If our influence is limited to stock prices, then this job It will not bring us such a great sense of satisfaction."

Anderson is thirty-seven years old and grew up in a rural town in Connecticut. His parents are university professors and nurses. During college, he went to Israel, while studying at the Hebrew University in Jerusalem, while working as a military doctor.

After graduating from university, Anderson invested in FactSet, a financial analysis company, to provide sales and technical advice to institutional clients. Later, his job turned into auditing and verifying potential transactions for investment companies of wealthy families.

However, he found that his real interest lies in "revealing the scam." He devoted a lot of his own personal time to investigating possible Ponzi schemes in the hedge fund industry, and occasionally partnered with Harry Markopolos-the latter is a well-known fraud investigator, the most famous deed is early In 2000, a warning was issued to the Securities Regulatory Commission, reminding them of the misconduct of Bernard Madoff. Later, Anderson himself founded a small brokerage firm to provide research services for hedge funds, but the performance was poor, so he sold his brokerage license and established Hindenburg.

"The current development path is not actually planned by me in advance." Anderson recalled, "I didn't think that I would have a career that can always look for Ponzi schemes. This was just a small hobby of mine at first. Annoys my bosses."

Anderson established his new company in a shared office space in the heart of Manhattan, focusing on shorting the stocks of lesser-known companies. At the beginning of his business, he desperately wanted to make a big hit, but he still failed to do so. Seeing his debts snowballed, he and his fiancee were facing the danger of being swept out of the rented apartment. Until December 2018, his luck finally came. At that time, Hindenburg and a hedge fund jointly released a research report on Aphria, a medical marijuana company. In the report, Anderson pointed out that the company's insiders were using several shell companies to "transfer shareholder funds to their own pockets."

After the report was made public, Aphria's stock price plunged 30% immediately. Relying on the profit from this short trade, Anderson finally kept his apartment. Anderson recalled afterwards that if that short selling still ended in failure, he might really have to find a "real job" and a reliable income.

Now, Hindenburg has a capable team, including former reporters from Bloomberg and CNN, as well as professional analysts. Even during the epidemic, working from home failed to stop them from researching and investigating. Anderson’s company often invests six months or even longer to complete a research report. During this period, they will carefully review all published records, contact and investigate the target company’s employees, and try to obtain possible companies. Internal documents. Hindenburg has the support of about ten financially strong investors, some of whom will short the corresponding stocks with them, but Anderson refused to disclose the specific identities of these people.

Anderson's evaluation of his company is: "Although it can be regarded as a successful company, it is still too early to determine how much it can do."

Recently, special-purpose acquisition companies have ushered in great prosperity. These companies have raised nearly US$200 billion since 2020 and have also provided Hindenburg with fertile ground for investigation. Special purpose acquisition companies are sometimes called "blank check companies". They raise funds through the open market and then have two years to find a suitable target company and merge with it. Compared with traditional IPOs, this type of transaction can bypass the scrutiny of many regulatory agencies and is regarded as a shortcut.

For example, the aforementioned Nicholas was listed in a roundabout way through a merger with a special purpose acquisition company called VectorIQ in June 2020. Later in the summer, two “whistleblowers” ​​disclosed to Hindenburg. Some insider stories about Nicholas.

Both of these are former business partners of Milton. They disclosed how exaggerated the various statements made by the Nicholas executive director about the company. A few months later, Hindenburg released a research report, calling Nicholas a "complex fraud based on dozens of lies." The report pointed out that Nicholas had a promotional video showing the working conditions of his so-called prototype car, but they did not explain that the truck in the video was actually just sliding down the ramp with neutral gear. A few weeks later, Milton announced his resignation and government agencies launched an investigation.

"Anderson was a hit this time and he was a big success." Muddy Brock admitted frankly that they had noticed the problems Hindenburg found in Nikolai, but they eventually let the opportunity slip away.

"For his perseverance, we really can't help but admire him. He always keeps his head down and stares at everything, keeps pushing forward, keeps learning, and keeps improving himself. I thought he really did this a year ago." Brock praised, " He proved his ability in Nikolai."

Anderson is secretive about how much Hindenburg made from Nicolas's short trade, but he admits that this is his company's largest and most profitable deal to date.

Encouraged by the great success of the Nicholas research report, Hindenburg quickly turned to Lordstown Motors, another electric car star start-up company. Lordstown originally planned to use a special purpose acquisition company to go public, and they had earlier attracted the attention of former President Trump and the traditional car manufacturer General Motors, which sold its assembly plant in Lordstown, Ohio to Up them.

Anderson and his team pointed out that Lordstown’s various remarks and publicity are overly optimistic. For example, the company’s founder and chief chairman, Steve Burns, once issued a statement stating that a series of commercial buyers have expressed their intentions and intends to Book them 100,000 electric pickup trucks that have not yet gone offline.

In the report released in March of this year, Hindenburg pointed out that Lordstown's various remarks on the production situation were basically speculative. In June, Burns and almost the entire management team resigned from Lordstown, and the company publicly stated at the time that they desperately needed cash or they would not survive, let alone build the first car product.

"There are too many companies that are intolerable." Anderson sighed, "We have studied some, and they don't have any revenue at all."

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